Tax Day Call to Action: Expand the EITC for Young, Childless Workers

posted by Tamara Kramer | 16sc
April 15, 2014

On tax deadline day, we want to put a spotlight on a proposal contained in the President's 2015 budget that would expand the federal Earned Income Tax Credit (EITC) for lower-income, childless workers.

As quick background - the federal EITC is a fully refundable[i] tax credit that is targeted to support low- to moderate-income workers. The credit becomes available to workers with their first dollar of earned income, peaks at certain predetermined amounts (which are based on marital status and family size), and phases out until it eventually reaches $0 for higher income earners.

The EITC has been routinely cited as a highly effective tax policy that both encourages and rewards work - and has seen support from both the left and right. Research shows that the credit produces major long term benefits for children that go well beyond a single tax year -- this study finds that children in families who receive the EITC have higher test scores, fewer teen births, and live in better neighborhoods as adults.

However, the EITC falls short, and should do more, when it comes to supporting young and childless workers. Childless workers under age 25 are completely ineligible for the credit and the average credit for qualifying workers between 25 and 64 is less than one-tenth the average credit for families.

Yesterday the Center on Budget and Policy Priorities created an infographic that further demonstrates the problem with the current structure of the EITC:

The Center has found that childless workers are in fact the only group that are pushed further into poverty as a result of the federal tax code.

In his 2015 Budget, the President has proposed reducing the qualifying age to 21 and raising the credit amount available to childless workers (from a max of $500 to a max of $1,000). The President's proposal also raises the phase out point for the EITC for these workers from $15,000 to $18,000. There are also several proposals before Congress that would expand the EITC beyond the changes proposed in the President's budget -- potentially creating even larger credits for these workers.

A change to the federal EITC could also bring a change to our state's EITC -- Connecticut is one of 21 states (there are total 26 states with a state EITC) that sets its tax credit as a percentage of what is offered on the federal level. We know that the combination of a state EITC with the federal credit helps bring an even larger number of families out of poverty. We should be extending this same opportunity, at both levels, to our young and lower-skilled workers who we know are facing an extremely difficult time in this economy and in this job market.

We call on politicians in Washington to adopt these measures, and to provide much needed support to these working Americans.

[i] A fully refundable tax credit is one where a payment will be made by the IRS directly to the taxpayer in the event that the amount of the credit exceeds the individual's income tax liability.